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A growing number of universities are using The Checkmate Pendulum as a thought-provoking text to get advanced students to think about the arguments and theories that they have come across in their other readings.

Globalizing the Checkmate Pendulum

by Prof. Jorge Braga de Macedo, Nova School of Business and Economics, Lisbon

Antonio Maria Costa and I overlapped at the UN Secretariat in New York (DIESA), the European Commission in Brussels (ECOFIN) and the EBRD in London. When he was at the UNODC in Vienna, I was at OECD in Paris, from where he had moved to Brussels a quarter century ago. We got back in touch in late 2013 and he let me read an early version of his thriller on the basis of which I wrote a quick review on 28 August, posted at the book’s dedicated site. The author has agreed to participate in my new graduate course on Globalization and Governance (G&G) at NOVA School of Business and Economics, Lisbon. These notes embed Costa’s lecture scheduled for 30 April, 2015 in other topics covered in the G&G course, especially international development. They should also help readers of The Checkmate Pendulum incorporate the southern hemisphere in the geo-political analysis contained in the book. In addition, Reading Notes are available at www.jbmacedo.com.

Four big questions behind the plot

The novel follows the investigations of a Franco-Italian journalist Pierre G. Bosco working for a CNN-equivalent, appropriately dubbed ENN into “arms trafficking and suspicious banking”. As a loner with celebrity status, he is dependent on Dominga, a Portuguese concierge, and resents his producer Jerry, a native New Yorker, keeping him on a short leash. He shares his thoughts on Europe and the world with Martha, his girlfriend, an academic born in former East Germany, and Scottie, an American he trusts as the only honest journalist. Dominga and Martha die as he uncovers “an epic conspiracy in which crime, finance and politics collude” seeking “global supremacy”. The action broadens from consequences of German-Soviet territorial disputes in the 1930s to rising US-China rivalries about Eurasia in the aftermath of the global financial crisis: thus the cover brings out red stars and an imperial eagle over a map of Europe - but the thirty chapters read like a worldwide travel logbook! The collusion between crime, finance and politics is supported by two related assertions:

“finance is war, and major powers are at war right now”

“despite their crimes, bankers are ‘too big to fail or jail’.”

Throughout the book the media are pictured as competing on both sides of the North Atlantic but the existence of a global public opinion is assumed through social media, and PGB’s celebrity status as the conscience of Europe is based on his tweets as much as on his ENN program with millions of viewers and grassroots initiatives such as T2, think twice before investing again in these kleptocrats. By promoting a yearly Mammon Prize for Outstanding Greed, PGB also introduces a “name and shame” twist to his investigations, but no winner is declared in the novel. As explained in the Preface, writing began when “three related events shocked the world”: the Soviet Union collapsed while German unification and a path to the Euro Zone (EZ) were agreed upon. Thus three of the “big questions” listed on the flap cover ascertain whether:

Germany’s EU dominance “will save Europe or wreck it for the third time in a century”.

Europe and the US can fight “Russia’s neo-imperialism and China’s global ascendency”.

The big questions confirm the assertion above that “major powers are at war” so that the threat is not so much from within Europe, as from without. Global games are played on different chess boards with the Americans, the Russians and the Chinese. Underlying the story is the author’s deep seated belief that “the separation between fiction and reality is a value judgment” (p. VI). Not surprisingly, this applies to the protagonist: PGB is not sure whether the conspiracy against Europe is solely the product of his imagination or, even worse, of his arrogance. Aside from Martha and Scottie, he only shares his anxieties with two friends from college in California, an American banker and a Polish chess master. In professional relations, he praises honesty above everything else but only seems to find it in people with whom he mostly disagrees, such as a Dutch journalist, Andrew Wouters, and a German G7 sherpa, Karl Bremmer. In addition to the adventures of PGB, the book covers “huge ground, much of it technical in nature”, from economics and international relations to “a vast array of expertise (chess gaming, stock market models, applied psychology, subliminal communication) and technologies (IT, filming & recording equipment, armaments, air warfare) that were never part of my professional training” but it is mostly about “people in the media – on air, on line in print” (p. VIII). Several existing newspapers are mentioned, especially FT and NYT, and many precise locations described throughout the book, which often reads like PGB’s travel log, his musings often printed in italics. Supported by the reading notes below, I deconstruct the dynamics of the financial, nuclear and cyber subplots of the 479 pages novel (p. VI) so as to show that they cannot be reduced to alternating checkmates between northern powers. This should not imply that the author is unaware of southern issues. Indeed the copyright belongs to the African Education Foundation Moringa, a fund held by the King Baudoin Foundation United States, a public charity. On the occasion of the Eight Armored Division being “pivoted off” from Colchester Barracks in Germany “perhaps to somewhere in Africa, as part of the US Africorps” (p. 294), the supreme commander of the American Third Army describes these dynamics: “The geometric figure of a kite best represents today’s world geo-politics. Think of Washington, Moscow, Beijing and Berlin sitting at a kite’s four extremities, connected by sides and shaped by angles that vary according to economic and military strength. In the center, namely the intersection of the kite’s diagonals, I position non-state actors even more dangerous than totalitarian nations, evil powers that can destroy humanity” (p.305). Thus examining how the kite “changes when its corners are pulled by economic or military factors” is not enough because “obscure forces around the world are preparing to reshape the kite, turning it into a deadly trap” (p. 307). The forces that can be felt around the world preparing to reshape the kite include states and regional blocs that include most of the world’s population and resources, and three of the so-called BRICS countries: Brazil, India and South Africa.

Nye’s Dominance Matrix and the Rest of the World

Introducing the dimension of international development however modifies the sides and angles of the kite and this may stabilize or destabilize G&G interactions. In effect, research carried out with coauthors since 2001 has shown that globalization improves governance and interacts positively with democracy among converging countries (Macedo et al, 2001, 2013a and b). This empirical evidence on the complex interaction between globalization, democracy and development in about 100 countries over 40 years is too coarse to bear on the pendulum dynamics within Europe, let alone the chess games among global players. Nevertheless, the positive interaction between globalization and freedom observed among OECD countries does not hold outside. In addition to this negative G&G interaction among many players, the effects of history on outcomes show that there is no effect of English or Spanish colonial heritage. As for geography, there is a negative G&G interaction for Africa and South America. Kites flying the northern hemisphere between US and three Eurasian state actors miss the action in the Rest of the World (ROW). The world system was described by Nye (2002) as a three dimensional chessboard where US dominance on security was accompanied by decline on the other two levels: diplomacy (intergovernmental cooperation) and civil society (transnational relations among private actors). In Macedo (2011, p.21), I note that the first and even the second waves of globalization (15th century and 19th centuries) did not involve as many players as the current one, and illustrate the positive or negative G&G interactions by means of a “dominance matrix” where the four rows of the dominance matrix add “land”, i.e. endowments both for agricultural and raw materials to the three levels mentioned, relabeled as defense, finance and trade whereas the four columns represent North America (US, Canada, Mexico), the EU (specifically EZ), East Asia (ASEAN plus China, Korea and Japan) and ROW. Before the global crisis, each represented roughly a quarter of world GDP in 1990 international dollars. The US dimension was key in the first two (in finance perhaps € close to $) but in trade EA dominated (perhaps close to EU), whereas ROW is the most endowed in people (one half), land and raw materials but also the most heterogeneous, including significant national actors, such as Brazil, Russia, India and salient regions, such as Africa and the Middle East.

The European periphery and the EZ crisis

One example is the macroeconomic adjustment of countries in the EZ periphery, such as Greece, Ireland or Portugal, where it is argued that the cure was worse than the disease. The world financial crisis itself is often pictured in ways reminiscent of the Occupy Wall Street movement. Rather than dealing with the EZ crisis as a mix of sovereign and banking crisis made unusual because of the absence of exchange rate risk, the narrative ignores perception of creditors and international investors. Therefore, in spite of the presentation of economic indicators such as national income and debt, no insight on differentiating responses of countries from Greece to Spain to Ireland can be gained. For example, it neglects not only how risks differ across EZ countries, independently of whether they are under bailout or not, but also how they spread from and to the periphery. Economic and financial differentiation must be brought into the picture. As mentioned in Macedo (2012), this entails the broader geographical domain of the Community of Portuguese speaking countries (CPLP) and migrant communities scattered across the globe. National differentiation which cuts across history and geography can be grounded on culture-based multilateralism. As an example consider the Bissau declaration on Millennium Development Goals (MDGs), put forward in 2006 by the eight members of CPLP. This declaration explicitly mentions “mutual knowledge” as a lever, alongside political will and financial clout, for the management of culture-based multilateralism, attempting “silo busting” (Tett, 2012) within organizations and nations. Challenging the neglect of culture in multilateral affairs and engaging the economics of happiness helps implement the MDGs and reinforces the global common good (Macedo and Macedo, 2011). Cohen (2012) has a convincing perspective on happiness, stemming from his earlier demonstration that rather than too much globalization, there is not enough of it. This is both cause and effect of lack of trust within and between nations: the pursuit of happiness and the gain in trust stem from mutual knowledge. The ongoing world re-distribution of wealth from West to East could revive long forgotten philosophical traditions as we move from the ideal of equality to that of wisdom, according to Delsol (2011). As she says in the introduction to her Age du Renoncement, when we are between paradigms we believe the old one will be replaced by chaos. If the uncertainty surrounding a transition brought about by the ongoing world re-distribution of wealth exacerbates concerns over the deteriorating quality of economic growth brought about by the spread of western patterns of mass consumption to masses in the South and the East, it may well accelerate a new paradigm of renunciation. The implicit dilemma feed/starve the beast is common in references to the mounting public debt in the UK and the US as justifications to cut spending and taxes. It reinforces the relevance of the adverse effects of improved terms of trade when the tax base is appropriated by a small number of interest groups. This paradox is present in the global redistribution of wealth from the North to the South, from the West to the East, beginning with Marx’s fear that in future capitalist China and India would exert pressure on socialist Britain. But in the EZ it is of lesser import than the need for industrial democracies to manage the deficit bias of budgetary institutions as a way of holding on to their credit ratings.

The West, the East and the beast

The West and the Rest was the title of the late Angus Maddison’s contribution to the 40th anniversary volume of the OECD Development Centre’s (Macedo et al 2004): according to his “millennial perspective on the world economy”, the divergence in income levels between Western Europe and its offshoots on the one hand and the rest of the world on the other which started well before 1820 (Maddison, 2001) were set to continue in the 21st century. The same expression is used in the subtitle to Ferguson (2011) to motivate the same questions (phrased as: How did the West overtake its Eastern rivals? And has the zenith of Western power now passed?) and offering the same answer: “beginning in the fifteenth century, the West developed six powerful new concepts that the Rest lacked: competition, science, the rule of law, modern medicine, consumerism, and the work ethic. These were the ‘killer applications’ that allowed the West to leap ahead of the Rest; opening global trade routes, exploiting new scientific knowledge, evolving representative government, more than doubling life expectancy, unleashing the industrial revolution, and hugely increasing human productivity”. Differently from Maddison, Ferguson argues that the days of Western predominance are numbered because the Rest have finally downloaded the six killer apps the West once monopolized – while the West has literally lost faith in itself. The projections to 2030 contained in Maddison (2007), his macroeconomic history of the world, were updated to take into account the upsurge in economic growth in much of the developing world up to the crisis: Maddison arrived at an income per capita over $8K per capita in 2030 for the rest, compared to $37K for the rich countries – meaning that the developed economies would remain more than four times richer. Mold (2010) notes that, if the World Bank 2009 purchasing power parity figures were used, the income gap would be larger still and adds “Absolute economic size matters on many levels – in terms of market potential, resource requirements, energy consumption, etc. However, in the final resort, what matters for economic development is the level of per capita income. The developing world may be on the verge of a ‘golden age’ in terms of its economic clout in the global economy, but aspirations of achieving standards of living comparable to those in high-income OECD countries are still a long way from being fulfilled. “According to these modifications to Maddison’s forecasts, in the global economy of 2030, the “Rest” accounts for nearly 70% of the global economy, compared to just 45% in the base year of 1990. It is worth remembering that a few years earlier the BRICS acronym presented the opposite view which is the emergence of a global middle class deepening and widening the appetite for western mass consumption patterns, from food to cars. Galbraith (2012) argued that the austerity moment is passing and adds that fashionable opinion offers the growth alternative. As he points out, though, “growth is only a goal. It is not a policy. And every lobbyist, political hack and ten-cent crank has a strategy to make growth happen. The details consist of whatever it was they most wanted beforehand”. He goes on to say that this “is nonsense and most people see that clearly. If austerity was a deceit, growth is a chimera”. His “neither austerity nor growth” rallying cry reminds me of La Force du Vertige, the 1983 book by nouveau philosophe André Glucksman built around the cold war dictum “ni rouges ni morts”. Quoting Galbraith (2012) again: “In truth the protestors of Greece and Spain and Italy, the voters of France and the Occupy Movement in America, who oppose austerity, do not clamor for growth. They do not care about profits or even all that much about wages. What they want, mainly, is to protect the institutions that make their lives tolerable, safe and attractive. These are health care, education, local public services, culture, the environment and the right to retire in modest comfort at a reasonable age. These citizens know where their interests lie. In modern life schools, universities, clinics, hospitals, clean and safe streets and secure future are not expendable. They have become the central features of life, the sum-and-substance of desire and happiness. Cars, computers, booze, and tobacco, these are the extras now. The companies who make them seek profits, and therefore growth. But the people would take solidarity instead, if they could.” For him, in the US solidarity and social progress rose from slavery, and the great struggle over the limits of solidarity has always been racial, while in Europe it arose from war. He acknowledges that “the idea that solidarity must extend across nations has not yet taken hold. Germans never promised to pay Spanish pensions; they took it as a European principle that they would never have to. But today Spain is in debt trouble, and the practical issue is whether Spaniards – or the Portuguese, or the Greeks – can have any social protections at all, if they stay in Europe”. One can guess that PGB would nod in approval. As it turns out there is a Southern echo, Roberto Mangabeira Unger, the “Minister of the Future” in the Lula administration in Brazil. Unger (2009) claims that “The world is bent under the yoke of a dictatorship of no alternatives” and therefore that “The task of the imagination is to do the work of crisis without crisis. Imagination, imagination, imagination to the rescue”. “The world is ready and united as never before. The great secular projects of emancipation, the liberal and socialist projects and the world popular romantic culture, have prepared all of humanity for the idea that it can be lifted up; that the objective is not simply a marginal advance in the quality, but the empowerment, the greatness of the ordinary person. And the method is not the humanization of the established framework through social policy, but the reinvention of the framework through cumulative institutional experimentalism. The world is ready and any fragmentary advance in part of the world, if correctly interpreted through a discourse that reveals its larger meaning would resonate sensationally though out the world”. Probably we will never know whether and how this cumulative institutional experimentalism would converge because “the transformative opportunity presented by the crisis (…) has already been largely wasted and in general there is a vicious circle, a paradox. We want institutions that would diminish the dependence of change on crises but the induction of such institutions in turn seems to depend on crises. We should not depend on crisis. It is so as not to depend on crises that we possess the faculty of imagination”. We are far from the apparent chaos in Delsol (2011)! As it turns out, the philosophical underpinnings in Unger (2009) involve fate rather than a Deus ex machina imagination. He claims that the “two most powerful impulses at work in the world today are the desire for socially inclusive growth and the struggle to affirm collective originality to develop distinct forms of life. Both these impulse are in the service of a larger ideal. Not the humanization of society but the divinization of humanity, the enhancement of the basic capabilities of men and women and the lifting up of ordinary life to a higher plane of intensity”. Yet, “a very restricted repertory of living options for the organization of different domains of social life (…) is the fate of contemporary societies. To rebel against that fate, through the alliance of theory and politics, it would be necessary to enlarge that repertory.” Sadly, many “countries in the world now are governed by people who would like to be Franklin Roosevelt and do not know how. The progressives throughout the world in general lack a program. Their program is the program of their conservative adversaries, with a humanizing discount and a falling discount, at that. The world financial and economic crisis, would supply an enormous opportunity to overthrow this dictatorship of no alternatives, but this opportunity has already been largely squandered”. Rather than discussing this financial and economic crisis, it is preferable in his view to address “the use or misuse of the crisis as an occasion, to form the global new deal, which on my understanding means to overturn this dictatorship of no alternatives”. To do so, he denies the prevailing “position of the progressives (…) that the orthodoxy is universal but the heresies can only be local. And these local heresies would be combined elements of the universal orthodoxy with local adaptation” Instead, a “universal orthodoxy can be combated successfully only by a universal heresy, as liberalism and socialism were in the last two centuries. A universalizing heresy, constituted by these constitutional innovations that paradoxically would provide the instruments through which contemporary societies could become not more like but different, inventing differences rather than clinging to remembering differences”. Differences to be invented connote governance innovation and are certainly part of positive responses to globalization. Nevertheless, negative responses were the norm and this can be explained by the “together alone” paradox. Flores (2011), another Brazilian, summarizes the argument: “The crisis has drawn attention to the fact that not only emerging powers but other regions of the world as well may be offering different development models and may constitute into alternative, in some dimensions more positive agents, in the conduct of the present stage of globalisation. Notwithstanding, the traditional western powers have not lost a large amount of control of the world economy. And the crisis proceeds, reallocating world power as in a Hobbesian anarchy. It is difficult to foresee smooth developments in the near future. On the contrary, multilateralism seems to be losing ground to unilateral action or bilateral arrangements (…).As economic policy becomes even more involved with defence and security affairs, the feedbacks from each side to the other seem likely to keep dissent and animosity high, rather than contributing to peaceful and constructive approaches”. Macedo (2011) finds the roots of the “together alone” paradox in the question asked by Queen Elizabeth on 5 November 2008 while visiting the London School of Economics. Inspired by the response of the British Academy in the form of a letter where the relevant actors are the UK, the US (footnoting the contribution of savings from China and India) and no insights are drawn from the natural sciences, the Lisbon Academy of Science launched a multidisciplinary debate on the global financial crisis incorporating new perspectives from Brazil as well as from evolutionary biology, which are entirely consistent with the emphasis on neuropsychiatry and subliminal messages throughout the book. The only diagram (p. 191) represents the chiasmus as Professor Reichenbach explained to PGB in Berlin and it comes back in a conversation with his Polish chess master friend at a crucial moment in the plot because PGB describes the cyber attacks on Southland and Tato as they were playing chess on their computers and this startles Jarek, whose father Mirek was a nuclear scientist involved in a similar project, “to cast immense holographs into clouds. The idea was to demoralize NATO soldiers and win battles without firing a shot” (p. 382). PG’s tweet “nuke thy neighbor is inevitable” (p. 291) had elicited an immediate response from Chan Lau, the ultimate victim of the game, who confesses that China is helping fund Ukraine! Another interesting example pertains to PG’s vision of Dominga’s blood everywhere, which reflected his anxiety about her death (p. 234) Coming back to the crisis itself, Krugman (2013) recognized that no economic theory can perform the feats its users have come to expect of it, especially because too much of what happens in an economy depends on what people expect to happen and concluded with a severe indictment of the profession. “In normal times, when things are going pretty well, the world can function reasonably well without professional economic advice. It’s in times of crisis, when practical experience suddenly proves useless and events are beyond anyone’s normal experience, that we need professors with their models to light the path forward. And when the moment came, we failed”. According to evolutionary economics, organisms’ evolution occurs locally and takes place over time, maximizing reproductive success, often taking advantages from crises in detriment of equilibria. If economics is done with the right spirit, some biological models cannot be applied. Some aspects in economics can be modeled by physics. Thus, for Krugman (2013), the Queen’s question is a wrong question. Financial crises are not new, they happen all the time and are recognizable. This time is different, but it is never different. At the surface it looks different, but on the basis there is always the same pattern. While more evidence is available from the past, people have a short memory regarding crises. In the immediate times people will save, but then they will forget and so will the regulators. People’s perception of bank functions has been misjudged. Lots of banks and products were unsupervised and unguaranteed. Through multiple perspectives, sights, networking and capacity of transmission between groups, a new attitude to face and overcome crises arises. The diversity of cultural perspectives could contribute to put multidisciplinary work in the agenda and to trigger public debate so as to transcend the silo curse “in a world that is both highly connected and tribal” (Tett, 2009). The paths of uncertainty can be placed in the “together alone paradox” (Macedo, 2011) which is a feature of the dominance matrix introduced above not just between North America, Europe and East Asia, but within each of these groupings and within the ROW. The great merit of The Checkmate Pendulum is to provide a fascinating plot within the first three.

Prof. Jorge Braga de Macedo Nova School of Business and Economics, Lisbon January 5, 2015